Bankruptcy

"Straight" Bankruptcy: Chapter 7

Am I eligible to file for bankruptcy under Chapter 7?

It used to be possible for anyone to file for bankruptcy under Chapter 7. However, a new bankruptcy law—the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005—came into effect on October 17, 2005. Under the new bankruptcy law, you are eligible to file for bankruptcy under Chapter 7 if you earn less than the median income in your state. If you earn more than the median income in your state, then you will only be eligible to file for bankruptcy if you pass a "means test" to determine whether you are eligible.

Discharge under Chapter 7 is not available if you filed for bankruptcy and were granted a discharge under Chapter 7 within the past eight years.

How does the means test work?

If you earn more than the median income in your state, the state applies a means test to determine whether you are eligible to file for bankruptcy under Chapter 7. In the means test, the court applies a complex formula (subtracting costs of food/rent/mortgage etc, calculated under IRS guidelines) to determine whether your monthly income is less than $100.

If your income is less than $100 per month, you can file under Chapter 7.

If your income is between $100-$166 per month, the court will determine what percentage of your unsecured debt they could pay off using disposable income over a 5-year period and decide whether you should file under Chapter 7 or 13

If your income is more than $166 per month, you must file under Chapter 13.

A bankruptcy lawyer can help you calculate whether or not you will be eligible to file for bankruptcy under Chapter 7.